Don't tax Amazon. Tax Amazon's shareholders

Corporations dodge tax. So go for their owners instead.

Tax avoidance is a problem which stubbornly refuses to be fixed. Even just defining our terms is problematic, with nearly every definition wide-ranging enough to cover all avoidance also including things which nobody finds objectionable.

And even if you could define it well, there's the fact that tax avoidance is, by its nature, legal. While some avoidance is truly, obviously, taking advantage of sloppy phrasing in statutes and judicial rulings, most of it exists in the grey area where it would be impossible to "tighten up" the law without also removing those deductions or exemptions which were supposed to be there in the first place. (For an example of this in action, look no further than the pasty tax debacle.)

The worst tax avoidance is undoubtedly in the corporate sector. While there are terrible examples of avoidance amongst individuals, like the New Yorker's examination of hedge-fund manager Julian Robertson's tax affairs, they are always hampered by the fact that actually offshoring personal income – the most effective form of avoidance, and the hardest to fight with the law – is tricky. People, after all, have a physical location. Some may become the infamous "non-doms", but to do that you have to spend half the year outside the country. That isn't something which can be achieved by just hiring a canny accountant.

While moralising can convince the worst corporate offenders to pay their fair share – as Starbucks finally agreed to do – it can't work every time. Some companies don't care about their image, others manage to hide their avoidance.

And so we come back to patching up the holes in the system. But with offshoring, some holes seem nearly unpatchable. For all the stirling work of campaigners like UK Uncut and Tax Research UK, the world is still no closer to agreeing on the best way to deal with multinationals which engage in creative "tax planning".

But there's one possibility: forget about them.

The reason why involves looking at the concept of tax incidence. If you accept that the only question of tax that matters is which people pay it, then corporation tax becomes a complicated issue. As a tax alters the bottom line of a company, one of two things will happen: either it will pass the costs on, or it won't. If it doesn't, then the actual people hit by the tax are the shareholders of the company, who see its profitability decline. (This is largely the intended outcome of campaigns against tax dodging.)

But if it does past the costs on, then either its customers and employees must bear the brunt, in the form of increased costs or decreased wages, or other businesses (such as suppliers or contractors) do, and the whole equation starts again.

(It is important to point out that the argument that all costs must be levied on a person at some point is not without its critics. After all, businesses have savings, assets, property and rights; who is to say that they can't be counted as people for the purpose of taxation? And the assumption at the heart of the argument is one which must be taken as faith. It's just as easy to argue, using the same logic, that the costs of all personal taxation must be borne at some point by businesses.)

Tax incidence varies business-to-business and over time. In the early 70s, when it was starting up in Washington state, Starbucks' tax incidence was almost certainly mostly upon its shareholders. Labour was expensive, coffee was a niche product, and investors in a small start-up were probably in for the long haul. Now that Starbucks has access to vast pools of low-wage labour and customers willing to pay up to $7 for a cup, it is far more likely that they will bear the brunt of much excess tax. (Although, of course, as John Elledge rightly points out, even then, it's not certain; and if there's anything we've learned from Lisa Pollack's investigation into the matter at the FT, it's that Starbucks' publicity machine holds a lot of sway within the company)

But here's the thing: if we want to tax just the shareholders of a company, we already have a way to do it. We tax dividends, and we tax capital gains. Increasing those taxes hits the people we hope would take the brunt of corporation taxes anyway.

So here's my proposal: scrap corporation tax, and whack up those two to make up the revenue gap.

There would be two big transfers inherent in this change: the first would be from shareholders in companies which pay little tax to shareholders in companies which pay a lot of tax. Since that's just another way to say "cracking down on tax avoidance", it need not upset us too much.

The other is more uncertain. By and large, international companies have international ownership. Those based in Britain with the majority of their shareholders overseas would be better off; those based overseas with the majority of their shareholders in Britain would be worse off. If the logic of the Conservatives, who have already cut corporation tax significantly, holds, we can expect that latter group to move headquarters here to take advantage of the rates; and if it doesn't, then we can expect the shareholders to sell up and buy into British companies.

There's a reason CGT and dividend taxes are so low, of course, which is to encourage investment. But since we would expect pre-tax shareholder income to go up, investment ought to still be compelling. It would just be targeted more effectively at companies which could actually make a profit, rather than those which could only make a profit if they were avoiding tax which their competitors were not.

If we can stop the biggest corporations avoiding tax, we ought to. But if trying to tax aggregations of people which can twist across country borders with ease is permanently difficult, perhaps we ought to stop trying it, and do something better instead.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Where Labour has no chance, hold your nose and vote Lib Dem

May's gamble, MacKenzie's obsession and Wisden obituaries - Peter Wilby's First Thoughts.

In 2007 Gordon Brown allowed rumours to circulate that he would call an early general election for the spring of 2008. When he failed to do so, he was considered a coward and a ditherer and never recovered. Theresa May has tried a different strategy. After firmly denying that she would call an early election and killing off speculation about one, she suddenly announced an election after all. Will this work better for her than the opposite worked for Brown?

The Prime Minister risks being seen as a liar and an opportunist. Her demand for “unity” at Westminster is alarming, because it suggests that there is no role for opposition parties on the most important issue of the day. If Labour and the Lib Dems are smart enough to co-operate sufficiently to rally the country against what looks like an attempt to instal an authoritarian, right-wing Tory regime, May, even if she wins the election, could find herself weakened, not strengthened. I never thought I would write this but, in constituencies where Labour has no chance, its supporters should hold their noses and vote Lib Dem.

Taken for granted

I wonder if May, before she took her decision, looked at the precedents of prime ministers who called unnecessary elections when they already had comfortable parliamentary majorities. In 1974, after three and a half years in office, Edward Heath, with a Tory majority of 30, called a “Who runs Britain?” election during a prolonged dispute with the miners. He lost. In 1923, Stanley Baldwin, a new Tory leader sitting on a majority of 75 obtained by his predecessor just a year earlier, called an election because he wished to introduce tariffs, an issue strikingly similar to the one raised by Brexit. He also lost. The lesson, I think (and hope), is that prime ministers take the electorate for granted at their peril.

China’s long game

Commentators compare the crisis ­involving North Korea and the US with the Cuban missile crisis of 1962. It doesn’t feel that way to me. For several days that year, nuclear war seemed, to my 17-year-old mind, all but inevitable. I went to the cinema one afternoon and felt surprise when I emerged three hours later to find the world – or, at least, the city of Leicester – going about its business as normal. Two nuclear powers were in direct confrontation. The US threatened to invade communist Cuba to remove Soviet missiles and blockaded the island to prevent deliveries of more weapons. Soviet ships sailed towards the US navy. It wasn’t easy to imagine a compromise, or who would broker one. Nobody doubted that the two sides’ weapons would work. The Soviet Union had carried out nearly 200 nuclear tests. North Korea has claimed just five.

For all the talk of intercontinental missiles, North Korea at present isn’t a credible threat to anybody except possibly its neighbours, and certainly not to the US or Britain. It is in no sense a geopolitical or economic rival to the US. Donald Trump, who, like everybody else, finds the Middle East infernally complicated, is looking for an easy, short-term victory. The Chinese will probably arrange one for him. With 3,500 years of civilisation behind them, they are accustomed to playing the long game.

Mussel pains

Whenever I read Kelvin MacKenzie’s columns in the Sun, I find him complaining about the size of mussels served by the Loch Fyne chain, a subject on which he happens to be right, though one wonders why he doesn’t just order something else. Otherwise, he writes badly and unfunnily, often aiming abuse at vulnerable people such as benefit claimants. It’s a new departure, however, to insult someone because they were on the receiving end of what MacKenzie calls “a nasty right-hander”, apparently unprovoked, in a Liverpool nightclub. He called the victim, the Everton and England footballer Ross Barkley, who has a Nigerian grandfather, “one of our dimmest footballers” and likened him to “a gorilla at the zoo”.
The paper has suspended MacKenzie, a former Sun editor, and Merseyside Police is investigating him for racism, though he claims he didn’t know of Barkley’s ancestry.

Several commentators express amazement that Sun editors allowed such tripe to be published. It was not, I think, a mistake. Britain has no equivalent of America’s successful alt-right Breitbart website, disruptively flinging insults at all and sundry and testing the boundaries of what it calls “political correctness”, because our alt right is already established in the Sun, Express and Mail. To defend their position, those papers will continue to be as nasty as it takes.

Over and out

Easter is the time to read the cricket annual Wisden and, as usual, I turn first to the obituaries. Unlike newspaper obituaries, they record failures as well as successes – those who managed just a few undistinguished performances in first-class cricket and, most poignantly, some who promised much but died early. We learn of a 22-year-old Indian who, during demonstrations against the alleged molestation of a schoolgirl, was shot dead by police and whose grieving mother (invoking the name of one of India’s greatest batsmen) cried, “Bring my Gavaskar back!” In England, two young men drowned, having played one first-class match each, and a 22-year-old Sussex fast bowler, described as “roguish” and “enormously popular”, fell off a roof while celebrating New Year with friends in Scotland. In South Africa, a young batsman was among five municipal employees killed when their truck crashed; the local mayor fled the funeral as his workmates “chanted menacingly” about unpaid wages.

Among the better-known deaths is that of Martin Crowe, probably New Zealand’s best batsman. In a Test match, he once got out on 299 and reckoned the near-miss contributed to the cancer that killed him at 53. “It tore at me like a vulture pecking dead flesh,” he said. Cricket can do that kind of thing to you. 

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 20 April 2017 issue of the New Statesman, May's gamble

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